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Caelus postpones appraisal well for big North Slope oil discovery

Caelus Energy’s Smith Bay rig. Caelus says tax credits are needed to help develop the find. (Image courtesy Caelus Energy)

The company behind what could be Alaska’s biggest oil discovery since the 1960s will not be drilling a well to confirm the find this winter, as originally planned.

Last October — with great fanfare — Caelus Energy announced it found 6 billion to 10 billion barrels of oil beneath the North Slope’s Smith Bay, about 2 billion barrels of which is recoverable. If developed, the company said the field could increase the amount of oil going down the Trans-Alaska Pipeline by nearly 40 percent.

At the time, the company said it would release crucial final tests on the discovery in 2018 after drilling an appraisal well this winter. But today, Caelus spokesperson Casey Sullivan confirmed that those plans have changed.

“Our goal, really, is to get out there as soon as possible, but, there are certain external factors that play into making a large decision like that,” Sullivan said.

Sullivan said Caelus won’t be drilling the appraisal well this winter for financial reasons. First, oil prices have stayed lower than the company anticipated. Second, Sullivan said the ongoing oil tax policy debate in the legislature made drilling the appraisal well too risky.

“Without knowing quite what the rules are or the clarity around funding of past tax credit payments and things of that nature, it just creates a lot of uncertainty,” Sullivan said. “And for a program like Smith Bay, which really is a significant undertaking that takes a lot of front loading and logistics, we really need that sort of certainty to be able pull off a program like that.”

The state has delayed payment of hundreds of millions of dollars in tax credits to Caelus and other oil companies. State lawmakers originally designed the credits to attract small, private companies like Caelus to the North Slope to increase oil production.

But due to the state’s fiscal crisis, the legislature is currently locked in a debate over reforms to Alaska’s oil tax system, and changes to oil tax credits seem likely.

Sullivan said Caelus still believes Smith Bay is a “world class” discovery, but he couldn’t say when the company will be able to return to the North Slope to confirm it.

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